demand side. and of course, if there's a supply shortage and prices go up, that puts more burden on the economy, which increases the likelihood that there'll be a demand shortfall, because of economic activity. and so what we're seeing is the interplay of these two has kept the price within this range, and we think it's, basically, we think the price is quite high when you consider the availability of oil in the market. and that's why we think that the market is including a premium for this threat of the disruption in the iranian case. >> my time is expired, but mr. burkhard and mr. diwan, anything, briefly, that you would add to that? >> very briefly, expectations about the future play a big role in oil price formation, and when you look at the limited amount of spare capacity, we estimate it's around 1.8 to 2.5 million barrels per day, call it 2 for this year, there's a reasonable

case to be made that iranian exports could have some degree of disruption this year. which would eat into spare capacity. so it's that limited amount of spare capacity and this fear, concern, about disrupted oil supplies that are keeping prices high. they could even go higher, despite the weak economy . >> mr. diwan? >> i largely agree with ambassador jones. i think that men have been working at 100 to 120 is exactly what we are in. however, we have really two tail end risk going on right now. one the financial crisis in europe. the other one is conflict in the middle east. so these two, in a way, can blow up that range. and that's the risk we're facing in 2012, if neither of which occur, we're very likely to stay. >> thank you. thank you, mr. chairman. >> thank you. let me ask dr. gruenspecht, you have in your testimony here that

net petroleum imports as a share of u.s. liquid fuels consumed drop, you project, from 49% last year, or in 2010, not last year, but in 2010, to 38% in 2020, and 36% by 2035. that's your projection. then you say that this projection was made not including in the reference case any further reduced projected levels of liquid, fuels, as a result of the fuel economy standards. could you -- have you calculated, if these fuel economy standards, which have been announced, by the administration and by the auto industry and by various others,

what does that do to the percentage of liquid fuels that we have to import? >> thank you, mr. chairman. we are certainly going to include that in a case like that in our full outlook. it makes a significant difference, i'd say, in the last decade of the projection, and by 2035, liquid fuel consumption would probably be lower by 1.4 million barrels a day, roughly. i'm right to remember the number. and most of that would come out of imports. so it's a pretty big deal. >> so instead of it then being 36% by 2035, what percent would it be? >> i would need to calculate that, but i will be glad to get back to you with that, or maybe one of my colleagues will calculate it while we're talking. >> that would be -- it would be a good figure, because i think a lot of the effort here in congress, and in the administration, has been to try

to put in place policies that would reduce the amount of petroleum we had to import. dr. diwan, you referred, i think, in your comments to structural trends of declining demand in the united states. could you elaborate on what you're talking about there? >> there's, obviously, the gasoline story, where we have more car efficiencies, but, also, we're seeing the residential heating fuel oil also declining and other product. cheap natural gas, cheaper coal, and the extension of the gas network will reduce the heating oil consumption too. you have a number of trends here for different fuels which are on the decline. but the biggest gain is, only,

on the zlegasoline side, structurally. >> okay. let me ask about the closing of refineries. we've seen refineries being closed in the united states and hawaii and the virgin islands, even in europe. what is the, both the impetus for this and the results that we're seeing? are we in a circumstance where we're going to see higher prices for gasoline at the pump, because of shortage of refined product, even while we've got an ample supply of oil being produced? i mean, what is going on here with refinery closures, dr. gruenspecht, do you have a perspective? >> i have something of a perspective. we've sent a -- we put a report on our website, right before christmas, a little short report on northeast u.s. refining. we are expecting to provide a much more detailed piece,

probably by mid-february. but, i guess the short answer is that certain types of refineries, you know, in certain regions, are not economically very attractive. i would point out that in the gulf, there's significant expansions of refinery capacity, and in the midwest, there have been significant expansions of refinery capacity. so in the strange eia speak, it's really pad one, or the east coast, and some places in europe, and i know, also, the refinery in the caribbean. but there's some areas where refineries are being closed, but there are other refineries where capacity is being added. you know, our concerns, which we expressed in the preliminary report we released in december, is really about the transition. there's a lot of petroleum products in the world, and there's some pretty, you know,

demand trends, as discussed, are some sense moderating with fuel economy standards, with increased use of biofuels, which reduce the sort of substitute away from petroleum-based products. ba but, you know, potential transportation bottlenecks, logistical issues, you know, it's a really -- it's a challenging environment. and something that i've asked people at eia to dig into a lot more deeply. >> mr. diwan, do you want to add a comment? >> i want to add structurally to understand what's happening here. in europe, we have declining demand, which means that the refinery capacity they have is too big forward market they're serving. so everybody has to run at a low rate, that mistakes a lot of the sector unprofitable. so the smaller refinery, they're under tremendous pressure to shut down. the refiners are losing money,

basically. in the united states, it's slightly different. we have the structural trends in demand, which are shifting, if you want, where demand and which product is in different region. at the same time, we have the shift in the crude supply, was given certain refiners location advantage, and certain refiners location disadvantage. so we're seeing a shift of the construction of refiners towards the ones that are better than others. it's really location issue, which has to match the changes in the supply. so you're trying to make sure that your infrastructure is adapting to your growth of supply in the united states, while in europe, the overall sector is declining, and needs to shrink. >> all right. thank you very much. let me go to senator braso. >> thank you very much, mr. chairman. i appreciate the opportunity to hear from these experts today. i want to thank them for sharing their knowledge. if we're going to grow our

economy and get americans back to work, we need to have access to affordable supplies of american energy. we heard that in this room and we sat and visited with bill gates not too long ago. to me this means coal, oil, tac natural gas, and renewable energy. so i was pleased last week at the state of the union when the president said, this country needs an all-out, all of the above strategy that develops every available source of american energy. my concern is that the president's rhetoric doesn't match followses that he pursues. and just a week before the state of the union, the president rejected the keystone xl pipeline. well, that's a pipeline that is estimated to create tens of thousands of direct jobs, will facilitate oil production in north dakota and montana, will improve our nation's energy security. so it's my hope that congress will reverse the president's decision soon and get americans back on track to a more secure and prosperous future. so mr. burkhard, in your written testimony, you specifically talk to the issue of the denial of

the permit for the proposed keystone xl pipeline. and you said that that raises the level of uncertainty regarding the long-term growth and disposition of major sources of world supply growth, including the canadian oil sands and the american onshore output. i wonder if you could expand on that, and specifically, with regard to u.s. oil production. >> sure. the canada, over the last decade, has become the most important source of foreign oil to the united states, by far. and the oil sands has been the principal reason for that. and so the oil sands are not just an important source of supply to the u.s. market, they have been a major source of global oil supply growth. in fact, if you look at the oil sands alone, the u.s. imports about as much oil, just from the oil sands, as we do from mexico or some other leading suppliers. the denial of the keystone permit does raise a question about the future pace of growth of oil sands production, and where it is sent. it is leading many canadian

decisionmakers to put more effort into exploring potential export routes to the west coast of canada, which could open the asian oil market. the more immediate question, with regard to the keystone xl pipeline, is, there is, the u.s. midcontinent is the principal market for oil sands going into the united states, and that u.s. midcontinent, the midwest, is nearing a saturation point for the oil sands. there's only so many refineries in the midwest u.s. there's only so much crude oil from canada they can take. so to expand the reach of canadian oil into the u.s., you need a palestine to the u.s. gulf coast, which is the largest, most sophisticated refining center in the world. in fact, it's been an important source of export growth for the u.s. but this denial does raise an

uncertainty about whether that growth will continue, as previously thought. >> thank you. dr. gruenspecht, i would like to ask you about diesel prices. in my home state of wyoming this weekend win noticed that a gallon of diesel is about a dollar higher than regular unleaded gasoline. it's my understanding that this difference can be attributed in part to a shortage of diesel in the suggest the upper plains. i know a lot of diesel is being shipped to north dakota to service some of the oil field work being done there. can you help me understand why diesel prices are so much higher than gasoline prices right now in wyoming? >> thank you. i couldn't specifically speak to wyoming without, you know, without doing some more research, but i do know that this issue of diesel and gasoline prices is a broader phenomenon. there may be special circumstances in wyoming. but really in part because of some of the issues we've been discussing, demand for the petroleum components of gasoline has been sort of depressed with fuel economy and a switch

towards biofuels. the developing world is driving a lot of the increase, in the developing world, it's much more heavily oriented towards diesel than towards gasoline. the world mix, if you will, of products, is much more -- the demand growth is in the distillates, diesel and heating oil is affecting senator shaheen's constituents and me, personally, since we happen to be one of the few people in washington that uses heating oil. but it's that set of products, the differential between gasoline and heating oil is grown. heating oil is much higher and diesel is much higher than gasoline. that's driving some of these refinery changes, which refineries are profitable and which ones are not, that have been discussed. so a lot of these things do tie together. >> ambassador jones, my final question, i want to ask you about global coal demand. according to the iea's world

outlook, you say the importance of coal is the highest since 1971. port says since all the talk about natural gas and renewables, coal won the energy race in the first decade of the 21st century. it explains that globally coal is the most important fuel after oil and that coal is the backbone of global electricity generation, alone accounting for 40% of electricity output in 2010. will you elaborate on the importance of coal to china, india, and other developing countries? >> well, certainly. first of all, one statistic that you didn't mention in your resume, which is quite accurate, is that in that first decade, coal accounted for half of the world's growth in energy. it's truly an impressive performance. and why was this? this was largely the two countries you mentioned, china and india. where they have electrified their countries. they brought electricity service to literally hundreds of millions of people in recent years, who have never had electricity before.

and a lot of that electricity was coal-fired electricity. at the same time, you know, china, in particular, has been wrestling with a growing pollution in its cities from these coal-fired power plants. and as a result, china is eagerly looking for alternatives. they are look at renewables and they are looking at natural gas. but, like in any country, a lot of the decisions that are taken in china on power are taken on economic basis and coal has been a cheap competitor. and has -- and that is why it has grown so rapidly. whether or not that will continue in the future is another question, especially now that china has aggressively decided to markedly expand their use of natural gas. but i do think that, and our projections show, that coal has a bright future as well. >> thank you. thank you, mr. chairman. >> thank you, senator shaheen.

>> thank you, mr. chairman. and thank you to all of our witnesses for being here this morning. i think every one of you in your comments and projections talked about demand and how that's affecting energy projections for the future. you may be aware that senator portman and i have sponsored energy efficiency legislation that addresses a number of sectors of the economy here. can you talk about how energy efficiency is incorporated into your projections and what increased use of energy efficiency would do to your future projections? and dr. gruenspecht, if you want to begin. viously, plays a very big role in our projections. again, we, for instance, our economic growth projection for the next 25 years for the united

states, i think it's on the order of 2.5%, plus or minus. and our growth in en slower tha. like half a percent a year. so, you know, energy efficiency plays a very important role in that. i have already indicated that in our reference case projection, we build in existing laws and policies, including final regulations, but not new ones, in response to a question from the chairman, i indicatedten on proposed, likely to become final, regulation, would have a significant other policies that, you know, might be implemented by policy makers, which you are and i am not, that would, you know, also have potentially have effect. so, yes, there's a lot of impact of energy efficiency in already, but our reference case is existing laws and policies, and

so, i think i would leave it there. >> ambassador jones? >> yeah, we have a variety of scenarios. we have a scenario similar to the eia scenario that's based on existing policies. we also have a scenario that we call the new policy scenario, which is based on announced intentions or policies. and then we have a climate scenario, that is designed to limit global warming to 2 degrees secentigrade. in all three of those scenarios, energy efficiency plays a very important role. in fact, we believe in looking at climate change and the need to restrict emissions of carbon dioxide, basically we think that energy efficiency alone, with currently available technologies, can lead to at least 50% of the emissions reductions we need, if we are going to produce -- or prevent global warming beyond 2 degrees

se centigrade. but, of course, energy efficiency isn't just important for the environment or for climate change, it's important for energy security. it's important for economic success as well. because the more efficiently you can use your resources, the more competitive you can be in the international market. the more efficiently you use your resources, the less of them you need, and therefore, the less dependent you have to be on imports of foreign energy. so energy efficiency is the one thing that we see that serves all of the objectives that are important to the iea, and we included in our models, we include in the base case scenario or e policies, we include, you know, a relatively small improvement in efficiency. the two more aggressive policy scenarios, we see stronger growth in energy efficiency. and that makes a very big difference. and i can't everyone size too much how important we see energy

efficiency for the world's energy future. and i want to distinguish this from conservation. conservation can be important in certain ways, getting the same services for less energy rather than doing with less services. >> thank you. and i'm not going to ask either of you about job projections since you've pointed out that's not under your purview, but i would just editorially point out that there are also a lot of jobs created in energy efficiency. i don't know if either of you would like to add anything to what's been said. >> fuel economy standards, we already mentioned, those play a tremendous role in oil consumption in the future. and we're seeing higher fuel economy standards, not just in the u.s. but also europe and china, other markets. one more challenging aspect to the efficiency efforts are buildings and structures. cars on the road for maybe 12 years, a building can be around for 100 years. and encouraging, providing

incentives for greater building efficiency could go a long ways. >> yes. mr. diwan. let me ask a very quick final question for dr. gruenspecht since you mentioned heating oil in the northeast. i'm very concerned about pad one, as you pointed out. you talked about the refineries that are down on the east coast. can you talk about the correlation between that, if there is any, and what we're seeing in increased costs for home heating oil in the northeast. >> thank you. i don't think there's really much correlation. i describe the broader picture of gasoline and distillate and, you know, as senator brasso pointed out, distillate prices in wyoming are very high. i don't think this refinery issue this winter so far has been much of the issue. i would point out that in our -- we do a winter fuels outlook at the beginning of each winter.

i think in october. and we did flag the, you know, the heating bills as being for oil users as being pretty significant. this upcoming winter -- >> right. >> -- and, you know, we've gotten a little bit of a break on the weather, and that's helped everybody, i think. it's come down a little bit, the projected expenditure increases. but i think we're still looking for the average heating oil user -- and it varies a lot depending on where you set your thermostat, where you are, how good your house is insulated, going back to energy efficiency, but still looking at $2400, $2300, you know, high as the winter fuel bills for heating oil households. and that's much higher than households using other fuels. >> yes, thank you very much. >> bad news travels fast. >> senator portman. >> thank you, mr. chairman.

i really appreciate the testimony. i got a chance to read through some of it while i was waiting to ask the question that i missed earlier. this is actually, i think, a lot of good news today that we're hearing in terms of additional energy supplies. and i'm particularly heartened by the comments of ambassador jones and mr. burkhardt about efficiency because that's an issue where i think we can make huge progress. i'm one of those. and i won't necessarily associate my colleague and co-sponsor with this, but, you know, we need to produce more and also use less. and those are not inconsistent. but my colleague and i do work very hard on trying to promote efficiency. and as mr. burkhardt mentioned, a lot of this has to do with buildings. our focus is really manufacturing efficiency and buildings. and it's trying to deploy as ambassador jones said some

existing technologies so we're not as much focused on even the innovative side, although we want to encourage that, and taking best practices in the united states has tremendous potential to even catch up with some other industrialized economies, namely japan and some of the european countries. and we can be more economically efficient and therefore help our economy by being more competitive and also, of course, as you said, we can use fewer imports by doing so. but we also need to produce more. and again, i think those two are not only not inconsistent, but i think they both help to create jobs and economic activity. again, i found looking at your testimony some very good news. mr. burkhardt, you talked about the fact that ihs global has now said that shale gas production has supported more than 600,000 jobs in 2010. they project 870,000 jobs by 2015. i think that's low. just based on what's happening in ohio where we have another projection showing another 200,000 jobs from utica alone during that time period which would account for almost all of that growth. so i think there's a lot of good news here.

what is holding back the natural gas production and distribution, mr. burkhardt? >> well, the -- on the natural gas side, prices are quite low because of this revolution and shale gas production. but what we're seeing is more companies shift towards liquids or producing oil. and one of the factors that's influencing the pace of investment is the rise in costs, finding the right people, the right equipment. there's not a limitless supply. there's, in fact, a missing generation of folks in the petroleum industry because from about 1986 to earlier this decade, oil prices were low. the industry was consolidating. there weren't many people entering the industry at that time. and as prices have risen, oil prices have risen. and activity has picked up particularly in this country.

there's been a great deal of pressure in finding the right people and getting the right equipment to the right places. so that's a significant challenge. >> so the testimony this morning, that's interesting, you all talked about the fact that because there is both wet gas and oil in some of the shale finds that that has encouraged people to go ahead and explore and extract even though the natural gas prices are relatively low. will that continue? i think of marcellus where maybe there's less of the wet gas or oil, but utica, maybe there's more. will that encourage more develop in some of those finds? >> yeah. >> mr. diwan. >> yes. we need to think about the u.s. gas market as an island. so if we oversupply, which we are right now and pric low, on the oil side, we don't have the same issue. oil prices are already global. and at the present prices and the present taxation system in the united states, these barrels are very profitable. so we will see a continued development of liquid plays.

and i think in the next two to five years, we'll have three or four new plays emerging just because of that price differential. >> mr. burkhardt, when i asked you about what might hold it back, you talked about skills, personnel and just resources devoted to oil maybe taking away from natural gas, the price of natural gas. you didn't mention infrastructure, although in your testimony, you talked about that. can you talk about what you see as some of the limitations on natural gas use and distribution because of our infrastructure challenges? >> well, one of the new really exciting developments in energy is the northeast from ohio, pennsylvania, that area becoming a significant gas producer and possibly oil producer as well. there weren't -- the u.s. pipeline system wasn't set up to ship gas away from those areas. it was shipping gas to those areas. so the challenge now is, you know, getting the right pipelines to the right places so

that gas and liquids can be economically developed. what we're seeing is this great revival on the supply side. this great revival has showed -- illustrated that our infrastructure system, our pipeline system, whether we're talking about the midwest or the northeast has yet to catch up with this great revival. >> and you would add keystone to that as well as mr. diwan said earlier, there still is adequate capacity now, but soon there won't be. and that would limit as well some of the development of some of our north american resources. >> there is enough cross-border capacity for the next few years, probably maybe till around 2019. but the problem in the short term, say in the next one to two years, is saturation of the midwest refining market. there's only so much oil that refiners in the midwest can take from canada. so that's expanding the reach of canadian oil to other markets in

the u.s., namely the gulf coast. >> the gulf coast is critical. >> listen, grit testimony. thank you, doctor, and all of you. my time is up. we appreciate your continuing to give this committee good information. >> senator landrieu. >> thank you, mr. chairman. i really appreciate the testimony, as usual. it's very, very helpful as we try to direct our policies to respond to some of the changing reality. i'd like to submit first for the record a report that just came out from our greater new orleans inc. that talks about the hidden job loss along the gulf coast. a story that really, in my view, hasn't been told because the unemployment numbers after the mccondo spill have stayed relatively flat. employment and unemployment. but it's because of the shift from south louisiana to north louisiana with the shale plays. but in south louisiana, we still are experiencing tremendous downturn because of the slow